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LO 2-4 Problem 2-23A Ar Analyzing operating leverage Xcel nold Vimka is a venture capitalist facing two alternative investment opportu invest $800 000 in a
LO 2-4 Problem 2-23A Ar Analyzing operating leverage Xcel nold Vimka is a venture capitalist facing two alternative investment opportu invest $800 000 in a start-up firm. He is nervous, however, about future econo analyze the following financial data for the past year'soperations of the t two firms he is ering and give him some business advice. Company Name Larson 16.00 $200,000 (128,000) 72,000 Benson $ 7.00 $200,000 Variable cost per unit (a) Sales revenue (8,000 units $25) Variable cost (8,000 units x a) Contribution margin Fixed cost Net income (56,000) $144,000 24,00096,000 48,000 $48,000 Required Round your figures to two decimal points in a. Use the contribution margin approach to compute the operating leverage for each firm. b. If the economy expands in coming years, Larson and Benson will both enjoy a 10 perce Larson: 15.00 enson: (30.00) increase in sales, assuming that the selling price remains unchanged. Compute the cha income for each firm in dollar amount and in percentage. (Note: Since the number creases, both revenue and variable cost will increase.) c. If the economy contracts in coming years, Larson and Benson will both suffer a decrease in sales volume, assuming that the selling price remains unchanged. Compute in net income for each firm in dollar amount and in percentage. (Note: Since the num decreases, both total revenue and total variable cost will decrease.) Write a memo to Arnold Vimka with your analyses and advice. d
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